Japan - July 2021

S P OT L I G H T
Savills Research

Regional JapaneseOﬃce Markets

Regional Japanese Oﬃce Markets

Regional markets have softened,
but a turnaround is in sight
Summary• Investment-grade offices in mostmarkets have seen rents falland vacancy rates rise, albeit atmoderate levels.
• Rental growth in all-grade
offices has ﬂattened. Meanwhile,vacancy rates have noticeablyloosened, though not to theextent seen in Tokyo.
• Affected by the pandemic,
investment volumes in 2020
were 9% lower than those of
2019. Similarly, investment ﬂows
during Q1/2021 were limited,though this should increase as
the economy recovers.

INVESTMENT-GRADE OFFICES1
Having had to contend with the global
pandemic for over a year, the regional
investment-grade oﬃce markets have
weakened. Conditions surrounding bothvacancy and rents have diminished as a result.
All regions have seen vacancy rates rise
to above 1.0%, with Nagoya and the capital
exhibiting the largest loosening on an annual
basis. Nevertheless, vacancy levels are still
below 2.0% in all regions bar Nagoya andoverall fundamentals remain sound.
Looking at rents, Fukuoka saw a 1.3% YoY
increase, partially boosted by the completion
1 In each of Osaka, Nagoya, and Fukuoka, Savills monitors
about 50 “investment-grade” offi ce buildings typically with a
GFA of 15,000+ sq m (4,500 tsubo) and a building age of <25years.

of some modern oﬃces. Other markets
were not so fortunate, with rents in Osakaand Nagoya falling by 2.2% and 0.6% YoY,
respectively. It is notable, however, that rentsin Tokyo plummeted by 6.5%, suggesting thatinvestment-grade oﬃces in regional cities are
faring relatively better than the capital.
Looking a bit closer, this market downturn
was not even across all the regions. Here, as
usual, performance varies greatly depending
on oﬃce location and quality although theoverall changes witnessed in vacancies andrents are generally still at manageable levels.
As such, there is hope that the regional oﬃce
landscape will improve as vaccinations are
expedited and the economy fully opens.

GRAPH 1: Remote Work Levels By Region
Greater Tokyo

Greater Osaka

Greater Nagoya*

Other

35%

• Japan’s economy saw growthin Q4/2020 before contracting
slightly in Q1/2021. With theacceleration of the vaccination
program, however, a recovery is
in sight.
• The pandemic has clearly shifted
demographic trends, and as aresult, fewer people are moving
to central areas than in previous
years. The full impact on theoffice market remains to beseen, however.
• The supply pipeline differs
greatly from city to city. While
the prospect of substantial
supply exists, the presence of
weak demand does not bodewell for rental growth.

30%

25%

20%

15%

10%

5%

0%
FY2016FY2017FY2018FY2019FY2020Source Ministry of Land, Infrastructure, Transport and Tourism, Savills Research & Consultancy*Greater Nagoya comprises Aichi, Gifu, and Mie prefecture.

GRAPH 2: Investment-grade Office Performance, 1H/2021
2020 Rent

2021 Rent

2020 Vacancy

2021 Vacancy
4.0%

50,000Rent YoY

45,000
-6.5%

-2.2%

-0.6%

1.3%

3.5%
3.0%

35,0002.6%

2.5%

30,0002.0%

25,00020,0001.7%

VACANCY

JPY / TSUBO / MONTH

40,0001.5%
1.3%

15,0001.2%
1.0%

10,000
5,000

0.8%
0.4%

0.5%

0.5%
0.3%

0.0%

0
Tokyo*Osaka

NagoyaFukuoka

Source Savills Research & Consultancy*Tokyo data represents Grade A offi ce performance in the C5W.

savills.co.jp/research2Regional Japanese Oﬃce Markets

ALL-GRADE OFFICES2
As we would expect, with the eﬀects of thepandemic lingering, growth in the all-grade
market has cooled. However, the presenceof growth in all regions except for Osaka,
where rents contracted 0.3% YoY, is apositive development. In this regard, rents inFukuoka and Sendai saw the greatest gains,
rising by 2.5% and 2.4% YoY, respectively.
Meanwhile, vacancy rates have inched
up across all regional markets. Sapporo
exhibited the smallest expansion of 1.1
percentage points (ppts) YoY, while Sendai saw
the largest of 2.0ppts YoY.
However, when compared to the looseningof 3.9ppts YoY in Tokyo, the relative vacancy
movements in regional cities appear moderate.

COVID-19 has taken its toll on
regional markets, with many seeing
weakening rents and rising vacancy.
That said, the expedited vaccination
rollout should help spark an economic
recovery later this year and increasedemand for office space. For now, theprospects for each region will dependon demand and supply fundamentals.

2 “All-grade” refers to offi ces typically over 1,000 sq m GFA,
depending on the market. Data is sourced from Miki Shoji.

GRAPH 3: All-grade Office Performance, 1H/2021*
2020 Rent

2021 Rent

2020 Vacancy

2021 Vacancy

40,0009%
Rent YoY
-4.7%

-0.3%

0.8%

2.5%

0.3%

2.4%

8%
7%

30,000

6.6%
6%

5.4%

25,0005%
20,000

4.0%

4.0%

3.9%

4.6%

4%

15,000VACANCY

JPY / TSUBO / MONTH

35,0003%
2.7%

10,000
2.3%

2.0%
5,000

2%

2.2%
1.6%

1.5%

0

1%
0%

Tokyo

Osaka

NagoyaFukuoka

Sendai

SapporoSource Miki Shoji, Savills Research & Consultancy*Market data as of Mar 2020 and Mar 2021

GRAPH 4: Expected Cap Rates for Grade A Offices, 2004 to 1H/2021
Osaka

NagoyaFukuoka

SapporoSendaiMarunouchi

8.0%

6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H

EXPECTED CAP RATE

7.0%

04 05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20 21

Source Japan Real Estate Institute, Savills Research & Consultancy

3

Unsurprisingly, regional markets havenot been immune from the impact of thepandemic. For starters, poor economic
conditions have led to the closure ofmany small and medium enterprises –tenants commonly seen in such markets.
Furthermore, the proliferation of ﬂexible
work arrangements has meant that somecompanies now require less oﬃce space than
before. Consolidations and cancellationsof relocations to larger ﬂoor plates havefollowed.
Despite the circumstances, regionaloﬃces have weathered the pandemic fairly
well, particularly compared to the capital.
One reason for this could be the diﬀerencein the level of remote work between the
two. According to a study undertakenby the Ministry of Land, Infrastructure,
Transport and Tourism (MLIT), remote
work has been signiﬁcantly more prominent
in Greater Tokyo since the pandemic began(Graph 1). This is most likely to be due to thecapital’s longer commute times and urban
density. With this in mind, given their higher
utilisation rates, regional oﬃce markets
should prove more stable going forward.
REGIONAL INVESTMENT
According to the bi-annual investor survey
conducted by the Japan Real Estate Institute(JREI) in April 2021, cap rates in all regional
markets have remained ﬂat, with the
exception of Sapporo which tightened 10
basis points (bps) from the previous halfyear. Overall, this indicates that interest in
the market has remained strong amidst the
pandemic because of its stability as well as
the attractive funding options available.
In light of the pandemic, investment
volumes in 2020 declined 9% YoY, although
they were still higher than 2018 levels.
Speciﬁcally, within the oﬃce sector,
transactions fell 13% YoY to its lowest annual

Regional Japanese Oﬃce Markets

GRAPH 5: Expected Cap Rate Spreads (vs Marunouchi), 2004 to 1H/2021
Osaka

NagoyaFukuoka

SapporoSendai

CAP RATE SPREAD VS MARUNOUCHI

3.0%

2.5%

2.0%

1.5%

1.0%

0.5%

1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H
2H
1H

0.0%
04

05

06

07

08

09

10

11

12

13

14

15

16

17

18

19

20 21

Source Japan Real Estate Institute, Savills Research & Consultancy

GRAPH 6: Investment Volumes By Area For All Asset Types, 2007 to Q1/2021
NagoyaSendai
Other

100%

SapporoTokyo
Total Investment (RHS)
8.0

90%

7.0

80%
6.0
70%
60%

5.0

50%

4.0

40%

3.0

30%

JPY TRILLIONSPROPORTION OF INVESTMENT (%)

Osaka
Fukuoka
Yokohama

2.0
20%
10%

1.0

0%

0.0

Source RCA, Savills Research & Consultancy*Transactions where speciﬁ c locations have not been identiﬁ ed are classiﬁ ed as other.

GRAPH 7: Japan Real GDP Change QoQ, Q1/2020 – Q1/2021*
6.0%

5.3%

4.0%
2.8%
2.0%
0.0%
-0.5%

-1.0%

-2.0%
-4.0%
-6.0%
-8.0%
-8.1%
-10.0%
Q1/2020

Q2/2020

Q3/2020

Q4/2020

Q1/2021

Source Cabinet Offi ce, Savills Research & Consultancy*Data is based on the second preliminary forecast

savills.co.jp/research

4

investment volume since 2012. Indeed, morewidespread remote work conditions had led
to uncertainty over occupier demand foroﬃces, and subsequently supressed investor
appetite towards the sector. Nonetheless,as the pandemic fades into the backgroundand workers return, expectations of rental
recoveries have driven some conﬁdence backinto the sector. This should translate to anincrease in investment volumes in 2021.
There are still high levels of both domestic
and international investor interest. As an
example, after announcing its plans to invest
US$10 billion in Japan over the next twoto three years, with up to a 70% allocation
to oﬃce buildings, BentallGreenOak
acquired Hirokoji Cross Tower in Nagoya
in a transaction estimated to be in thehigher end of the JPY40 billion range.
Furthermore, PAG also acquired ShinYokohama Business Tower for an estimated
JPY16 billion. Despite a slow ﬁ rst quarter,
higher transaction volumes can be expected
over the remainder of 2021 as the pandemic
approaches a close and market prospects
become clearer.
REGIONAL MACRO AND
DEMOGRAPHICS
After a signiﬁcant decline in GDP in
Q2/2020 resulting from the economic
slowdown induced by the pandemic, Japansaw two quarters of positive real GDP
growth in the latter half of 2020. In Q1
this year, real GDP was reported to havecontracted slightly by 1.0% QoQ, following
a second state of emergency declared in
January. Despite the extended restrictions
into Q2, the Bank of Japan’s (BOJ) Regional
Economic Report in April 2021 adopted aneutral outlook on the economies of mostregions, with the exception of Hokkaido andTohoku whose economies were hit harderby the pandemic. Indeed, the Japanese
economy may look forward to a slow but
steady recovery, which will accelerate as thepace of vaccinations picks up.
The job-to-applicant ratio has seen littlechange since the pandemic hit, with levelsin the prefectures which we cover hovering
above 1.0x over the past half-year, with the
exception of Hokkaido which has dippedslightly below that level. Nonetheless,considering that the ratios in Hokkaido were
well below 1.0x up till 2015, the employment
environment is still in relatively good shape.
Overall, the fact that a majority of regions
have a ratio over 1.0x is comforting, although
the relatively weaker employment may delay
the increase in demand for oﬃce space.
Elsewhere, the pandemic has shifted
demographic trends in some cities. Notably,
cities like Sapporo and Nagoya saw falls intheir populations from pre-pandemic times,
deviating from their usual upward trend.

Regional Japanese Oﬃce Markets

TABLE 1: BOJ Regional Economic Assessment, April 2021

CHANGE VS
JAN 2021

REGION

TREND

Hokkaido(Sapporo)“The economy has remained in a severe situation due to theimpact of COVID-19, and has been more or less ﬂ at.”Tohoku(Sendai)“The economy has picked up as a trend, but the impact of aresurgence of COVID-19 appears to be growing recently, primarily
in consumption of services.”

Kanto(Tokyo)“The economy has picked up as a trend, although it has remained ina severe situation, primarily in consumption of services."

Tokai(Nagoya)“The economy has been picking up, even during the continued
severe situation.”

Kinki(Osaka)“The economy has been picking up on the whole, although it hasremained in a severe situation due to the impact of COVID-19.
However, consumption of services has been facing strong
downward pressure, with the implementation of priority measures
to prevent the spread of disease.”

Kyushu(Fukuoka)“The economy has started to pick up, primarily in exports andproduction, although it has been in a severe situation.”
Source Bank of Japan, Savills Research & Consultancy

MAP 1: Population changes in selected prefectures and cities, January 2020 to May
2021*

Osaka City

Osaka Prefecture

0.39%-0.25%

Fukuoka City

Fukuoka Prefecture

0.46%-0.07%

SapporoHokkaido Prefecture-0.50%-1.87%

Sendai

Miyagi Prefecture

0.14%-0.71%

Tokyo 23W

Tokyo Prefecture

0.00%

0.08%

Nagoya City

Aichi Prefecture-0.22%-0.39%

Source Respective Prefectural Governments, Savills Research & Consultancy*Fukuoka’s population change is between Jan 2020 and Sep 2020, as the prefecture paused its population census.

GRAPH 8: Job-to-applicant Ratios, Selected Prefectures, 2000 to March 2021
Tokyo

Osaka

Aichi (Nagoya)FukuokaMiyagi (Sendai)

Hokkaido (Sapporo)

2.5x

2.0x

1.5x

1.0x

0.5x

0.0x

Source Ministry of Health, Labour, and Welfare, Savills Research & Consultancy

5

Although the impact of workstyle changes
is being felt more in Tokyo, increased
remote working appears to have reduced
the propensity to move to more central
locations in many areas. In the long term,
despite the low risk of these cities losing
their importance as key hubs for commerce,these migration trends might be prolonged
if companies continue to embrace remote
working practices. Many companies may
instead adopt a hybrid work style, giving
staﬀ the opportunity to occasionally work
remotely, but with the oﬃce still functioning
as its main operational base.
OUTLOOK
More than a year has elapsed since thepandemic struck. While companies
have adapted well to the circumstances,ﬂuctuating infection cases have made itdiﬃcult for occupiers to assess the economic
situation and as a result many have taken
a wait-and-see approach regarding leasing
new oﬃce space.
Remote work has undoubtedly become
more widespread in Japan, partly
contributing to some loosening in oﬃce
vacancy levels across all regions. In the caseof all-grade oﬃces, however, the relatively
lower levels of remote working in regional
areas have led these oﬃces to perform better
than Tokyo.
Additionally, progress in vaccinations
has allowed us to envision a post-pandemic
world. Less convenient oﬃces may see
some corrections in rent in order to attract
tenants as some companies are likely toadjust their leasing strategies and prioritise
better located oﬃces.
Furthermore, investment-grade oﬃces
have maintained low vacancy rates despite
the pandemic and have proved to be quite
resilient. Looking forward, older oﬃces
with poor accessibility have a higher chanceof suﬀering in the mid-term due to more
proliﬁc ﬂexible work arrangements.
One market which may struggle is
Osaka. Here we expect the delivery of large
amounts of oﬃce supply concentrated
within a few areas in a short period oftime. This, matched with discouraging
pre-leasing does not bode well for themarket. Furthermore, like Tokyo, it has seen
comparatively heightened levels of ﬂexible
work arrangements, reducing demand foroﬃces.

Regional Japanese Oﬃce Markets

GRAPH 9: New NRA Office Supply In Osaka City, 2006 to 2023

OSAKA CITY

70,00060,00050,000TSUBO

40,00030,00020,00010,0000

Source Sanko Estate, Building Group, Savills Research & Consultancy

GRAPH 10: Vacancy Rate In Osaka City By Area, 2011 to Q1/2021
Average
Yodoyabashi-Honmachi
Shin-Osaka
25.0%

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

VACANCY

20.0%

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 11: Average Rent In Osaka City By Area, 2011 to Q1/2021
Average
Yodoyabashi-Honmachi
Shin-Osaka

Umeda
Semba

Minami-Mori
Shinsaibashi-Namba

17,000JPY / TSUBO / MONTH

16,00015,00014,00013,00012,00011,00010,000
9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

6

Net Rentable Area (NRA)
New supply in Osaka looks to be unevenly
distributed over the coming years. While
supply in 2021 and 2023 is relatively sparse,
2022 and 2024 look to add around 45,000 and
65,000 tsubo of NRA, respectively.
2021’s most notable completion, theHonmachi Sankei Building, is adding about
9,000 tsubo of NRA to the market. While
pre-leasing for new buildings this year has
been poor, the impact of this will likely bemoderate given its size.
The Osaka Umeda Twin Towers South willlead the supply throughout 2022, introducing
28,400 tsubo of high-quality NRA into
the Umeda submarket, and has had soundpre-leasing activity. Likewise, another large
property coming to the market next year,
the Nippon Life Yodoyabashi Building, also
appears stable. However, 2024 also looks to
add over 60,000 tsubo of additional NRA into
Umeda, and it is uncertain if the submarket
will be ready to absorb such a large amount.
Vacancy
Investment-grade vacancy rates haveincreased 0.9ppts YoY to 1.4%. A sizable
portion of this is attributed to the S-Building
Shin-Osaka that came to the market in late
2020 and remains mostly vacant in part due
to its nonideal location.
All-grade vacancy rates have been
gradually increasing since the onset ofthe pandemic, with a particular uptickin Shin-Osaka. Many new buildings inthis submarket have been sitting at low
occupancy, evidently the underlying
contributor to the high vacancy levels seenin the city.
Given the limited new supply expected
in 2021 and sound pre-leasing activity forsupply in 2022, alongside a slowdown in
COVID-19 cases, the Osaka oﬃce market
should be able to perform better.
Rent
Rents for investment-grade oﬃces in Osaka
have decreased 2.2% YoY, and overall,
the gains seen in the previous year haveeﬀectively been reversed. Indeed, somebuildings experiencing vacancies have
reduced rents in order to quickly attract new
tenants.
After growing throughout the pandemic,
rental growth in the all-grade oﬃce market
has ﬁnally petered out. Speciﬁcally, Semba
and Shinsaibashi have shown contractionsof around 3.0% YoY from the highs seen in
2020. However, thanks to continued growthin Umeda and Shin-Osaka, rents in Osaka
overall only declined 0.3% YoY to JPY11,900
per tsubo.
Despite the contraction seen overthe past year, rental levels are currently
overall higher than they were two years

Regional Japanese Oﬃce Markets

TABLE 2: Osaka Prefecture Key Macro Indicators

TOKYO

OSAKA

Real GDP (JPY trillion) (FY2018)

105.9

39.0

Real GDP (YoY%)

0.5%

0.1%

% of Japan (FY2018)

19%

7%

Population (million)

14.0

8.8

Job to applicant ratio

1.2

1.2

Source Cabinet Offi ce, Osaka Prefectural Government, Savills Research & Consultancy

TABLE 3: Osaka Investment-grade Offices

1H/2021

HOH

YOY

Rent

22,600

-2.0%

-2.2%

Vacancy

1.3%+0.8ppts+0.9ppts

Top Rent

35,00000Source Savills Research & Consultancy

ago. Furthermore, rents for investmentgrade oﬃces in Osaka are over 30% more
expensive than they were ﬁve years ago
in 2016, demonstrating robust growth.
However, this high rate of growth has
conversely made corrections in rental levels
more likely with the economy weakened.
Umeda
Umeda is still the most expensive
submarket in Osaka. Speciﬁcally, the range
of investment-grade rents is still between
JPY20,000 and JPY35,000 per tsubo, having
remained unchanged largely through the
pandemic. While there have been somepatches of vacancy arising in a few buildings,
vacancy levels are generally tight.
A large amount of supply will enter
the market in 2022, namely the Umeda
Twin Towers South and the Nippon Life
Yodoyabashi Building. With rumoursof large corporations moving into thesebuildings, secondary vacancy is certain
to arise in some buildings located aroundUmeda and Nakanoshima.
Yodoyabashi-Honmachi
The Yodoyabashi-Honmachi submarket has
overall managed to maintain its rental levels.

In general, most investment-grade oﬃces
are demonstrating low levels of vacancy,
although there are a few exceptions.
For instance, the OBIC Midosuji Building
is still showing high levels of vacancy since
it came onto the market in early 2020, inpart due to its relatively high rental levels.
Indeed, some other oﬃces coming to themarket this year have had poor pre-leasing
activity and are decreasing rents in order toquickly attract tenants.
Shin-Osaka
Shin-Osaka’s rents have seen softening
although its range of rents have remained
unchanged from the previous half-year.
However, the levels of asking rents for newbuildings have decreased signiﬁcantly sincepre-pandemic times. Furthermore, manybuildings are starting to exhibit notablelevels of vacancy, showing the stark contrast
between popular buildings and less popularones.
For instance, the pre-leasing activity
for new buildings set to open in early 2022
are looking poor with few tenants decided
despite their approaching completion. As
such, the submarket should see further
weakening.

7

OutlookCompared to a half year ago, on the surface,market conditions in Osaka look somewhat
bleak - vacancy levels have increased, rents
have declined, and the restrictions on
business hours from the state of emergency
have added further downward pressure on
consumption. Furthermore, the low levels
of inbound tourism have weakened the local
economy. This has greatly aﬀected the land
value of commercial prime areas, which has
decreased by over 20% since the onset of thepandemic.
The new supply in 2021 has seen poorlevels of pre-leasing. As such, it may takeadditional time before the supply canbe amply ﬁ lled. Furthermore, Osaka’s
substantial supply in 2022 and the resulting
secondary vacancy is a concern. Areas like
Shin-Osaka are likely to suﬀer more fromthe supply because of the robust growthseen in previous years and its distance from
Osaka's CBD.
Nonetheless, while the Osaka market has
seen some softening, there is still hope forthe market going forward. The Osaka market
should improve once the Tokyo oﬃce
market gets back on track with the overall
improving economic conditions next year.

Regional Japanese Oﬃce Markets

GRAPH 12: New NRA Office Supply In Nagoya City, 2006 to 2023

NAGOYA CITY

50,00045,00040,000TSUBO

35,00030,00025,00020,00015,00010,0005,000
0Source Sanko Estate, Biz Life Agent, Savills Research & Consultancy

GRAPH 13: Vacancy Rate In Nagoya City By Area, 2011 to Q1/2021
Average

Meieki

FushimiSakae

Marunouchi

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 14: Average Rent In Nagoya City By Area, 2011 to Q1/2021
Average

Meieki

FushimiSakae

Marunouchi

16,000JPY / TSUBO / MONTH

15,00014,00013,00012,00011,00010,000

NRA
After three consecutive years of relatively
low supply, Nagoya looks to introduce
a steady supply of NRA into the market
towards 2024 comprising multiple large
projects that are well distributed acrossdiﬀerent submarkets.
In 2021, about 17,000 tsubo of NRA will
be added to the market. The largest supply
inﬂux will come from the mixed-use project
BIZrium Nagoya, bringing 7,000 tsubo of
NRA. However, response to the development
so far has been varied given its uniquefeatures. Elsewhere, buildings near Nagoya
station have continued to perform well. For
instance, the Nagoya Mitsui Building North,having introduced over 5,000 tsubo of NRA at
the start of this year, is making an acceptable
start.
Pre-leasing activity in upcoming
developments like the Urbannet Nagoya
Nexta building in 2022 is doing well, with amajority of the building already ﬁ lled. Further
down the pipeline, the Chunichi Building
set to open in 2023 looks promising, andhas plans to start pre-leasing activity withreasonable asking rents.
Overall, the stable pace of new supply in
Nagoya in upcoming years should not distort
the market’s balance of supply and demandand should be well received given current
response to new buildings coming online, andthe overall performance of most investmentgrade buildings.
Vacancy
The global pandemic has persisted for overa year and has taken its toll on the Nagoya
economy. To wit, investment-grade oﬃces
have seen an increase in vacancy by 1.8ppts
to 2.6% YoY. However, a signiﬁcant portionof the increase came from Global Gate West
Tower and the Meieki Daiya Meitetsu Buildingthat both lie away from Nagoya station. In
contrast, most other buildings are either atfull occupancy or minimal vacancy.
Average vacancy levels have risen to 4.0%
for the all-grade market and have been
gradually increasing since the start of thepandemic. Meieki is the primary source of themarket’s high vacancy levels, having reached5.0% vacancy in March 2021.
Going forward, secondary vacancies arelikely to arise in older buildings as a result
as newer buildings are completed. However,moderate rental corrections accompaniedwith the recovering economy should maintainsuﬃcient demand for these oﬃce buildings.

9,000
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

8

Rent
Investment-grade rents have seen a mild
decline of about 0.6% YoY to approximately

Regional Japanese Oﬃce Markets

TABLE 4: Aichi Prefecture Key Macro Indicators

TOKYO

AICHI

Real GDP (JPY trillion) (FY2018)

105.9

39.4

Real GDP (YoY%)

0.5%

1.9%

% of Japan (FY2018)

19%

7%

Population (million)

14.0

7.5

Job to applicant ratio

1.2

1.1

Source Cabinet Offi ce, Aichi Prefectural Government, Savills Research & Consultancy

TABLE 5: Nagoya Investment-grade Offices

1H/2021

HOH

YOY

Rent

20,600

-0.5%

-0.6%

Vacancy

2.6%+1.4ppts+1.8ppts

Top Rent

35,00000Source Savills Research & Consultancy

JPY20,600 per tsubo. While the pandemic
has halted rental growth, the market
remains solid overall as seen in the soundpre-leasing activity, suggesting that rents
may recover once the economy strengthens.
As vacancy neared 4.0% for the all-grade
market, rental growth has begun to fade.
While Meieki and Fushimi saw positive
rental growth due to newer buildings, Sakae
and Marunouchi’s rental growth began to
ﬂatten out in 2021.
Meieki
Meieki is still the premium submarket with
its access to Nagoya station and high-quality
buildings. Nonetheless, its rents havecontracted 2.6% YoY to around JPY27,800 per
tsubo. Indeed, signs of weakening demand
have even been seen in the towers aroundthe station - some vacancies have arisen after
being fully occupied for a few years. Moreover,its range of rents has stretched to between
JPY26,000 and JPY35,000, signifying a drop of
JPY2,000 on the lower end.
The lower rental levels have beenaccompanied by increases in vacancy,
particularly in a few buildings. For example,
the Nagoya Mitsui North Building came tothe market in early 2021 with a few vacant
ﬂoors.

Fushimi and Marunouchi
Rental levels in Fushimi and Marunouchi
have managed to hold ﬁ rm over the past year
despite the economic downturn, with rents
still averaging more than JPY18,000 per
tsubo. Vacancies in both submarkets are low
overall, demonstrating the relatively strong
performance of the area.
Hirokoji Cross Tower is currently
occupied by Mitsubishi UFJ, that will
move to the nearby Mitsubishi UFJ Nagoya
Building set to be complete in by mid-2021.
Given the building’s very large size, it may
encounter some diﬃculty when ﬁ lling ﬂoors
without adjusting rents.
Outlook
Nagoya has seen rental growth ﬂatten withvacancy loosening across the market. While
the most prime buildings should perform
well, the weakened economy could meanthat other buildings will have to lower rents
in order to attract tenants. Nonetheless, themarket looks to be in good condition.
Overall, new supply in Nagoya seems to beof good quality and well distributed acrossdiﬀerent locations, and therefore is expected
to be positively received by the market.
Post-pandemic, the strong manufacturingsector should boost GDP growth for the9city as the worldwide economy recovers anddemand for manufactured goods increases.

Regional Japanese Oﬃce Markets

GRAPH 15: New NRA Office Supply In Fukuoka City, 2006 to 2023

FUKUOKA CITY

30,00025,000TSUBO

20,00015,00010,0005,000

0Source Sanko Estate, Building Group, Savills Research & Consultancy

GRAPH 16: Vacancy Rate In Fukuoka City By Area, 2011 to Q1/2021
Average
YakuinHakata Sta. Southeast

Akasaka
Gion

TenjinHakata Sta. West

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 17: Average Rent In Fukuoka City By Area, 2011 to Q1/2021
Average
YakuinHakata Sta. Southeast
13,000Akasaka
Gion

TenjinHakata Sta. West12,500JPY / TSUBO / MONTH

12,00011,50011,00010,50010,000
9,500
9,000
8,500
8,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

savills.co.jp/research

10

NRA
In late 2020, oﬃce stock in Fukuoka saw
a drop in NRA to its lowest point in recent
years. However, a new high is expected by
the end of 2021 with the largest amount of
new supply in over a decade due to come tothe market. Furthermore, supply is expected
to continue increasing in 2022 before
cooling down in 2023.
Overall, the market reaction to the new
supply in 2021 has been positive, and it
has been mostly absorbed. However, 2022
will also introduce over 20,000 tsubo of
NRA, approximately four times the averageamount introduced between 2011 and 2020.
Considering that a majority of the supply in
2022 will be built away from train stations,these properties may encounter somediﬃculty in attracting tenants.
After a reprieve in 2023, developments
such as the Fukuoka Building Block
Redevelopment Project, which is the mainpart of the Tenjin Project, are expected to
add 12,000 tsubo of NRA in 2024. Moving
forward to 2028, projects such as Tenjin Big
Bang and Hakata Connects are expected to
add substantial levels of supply.
Vacancy
For the ﬁ rst time in ﬁve years, the vacancy
levels of investment-grade buildings inFukuoka have exceeded 1% after increasing
0.8ppts YoY. The root of the increased
vacancy was COVID-19 causing many small
to mid-size companies to close or reducein size, consequently reducing the demandfor oﬃce space. Many large buildings thatwere once full are hence beginning to seesome vacancy. Moreover, secondary vacancy
from the 2020 supply, in combination witha deﬂated reaction to the 2022 supply thus
far, may indicate caution in the market nextyear.
Speciﬁcally, Yakuin saw the highest
increase in vacancy in 1H/2021, rising
2.7% YoY. On the other hand, Tenjin andAkasaka saw decreases in vacancy by afew percentage points from last year. The
remaining submarkets stayed relatively ﬂat.
Elsewhere, the all-grade market in
Fukuoka has nearly doubled in vacancy YoY
to 4.0%. With many mid-sized buildings
continuing to see departures, vacancy levels
have continued to increase.
Rent
In 1H/2021, investment-grade rents
in Fukuoka increased by 0.7% HoH to
JPY19,000 per tsubo, partially stemmingfrom a new addition, the Hakata Fukami
Park Building. However, despite COVID-19,
Fukuoka rental levels have maintained
steady growth, primarily due to new oﬃce
openings and a positive ratio of business
openings to closings. Furthermore, theRegional Japanese Oﬃce Markets

TABLE 6: Fukuoka Prefecture Key Macro IndicatorsTOKYO

FUKUOKA

Real GDP (JPY trillion) (FY2018

105.9

19.1

Real GDP (YoY%)

0.5%

0.9%

% of Japan (FY2018)

19%

3%

Population (million)

14.0

5.1

Job to applicant ratio

1.2

1.0

Source Cabinet Offi ce, Fukuoka Prefectural Government, Savills Research & Consultancy

TABLE 7: Fukuoka Investment-grade Offices

1H/2021

HOH

YOY

Rent

19,0000.7%

1.3%

Vacancy

1.2%+0.3ppts+0.8ppts

Top Rent

25,000+00Source Savills Research & Consultancy

market is beginning to see an increasein leasing activity again after a period ofstagnation due to COVID-19.
All-grade rents in Fukuoka increased
to JPY11,100 per tsubo in 1H/2021 – thehighest price on record. This translates toan increase of 2.4% YoY. Fukuoka’s all-grade
market has maintained rental growth,whereas many other regional peers haveseen growth ﬂatten or slightly contract.
Station Front
The Hakata submarket has remained
popular with average rents for investmentgrade buildings now at new highs of
JPY20,500 per tsubo. In addition, as rental
growth has slowed in the most expensive
submarket Tenjin, Hakata has narrowed its
gap in rents between Tenjin down to 1% –half of the premium seen last year.
New buildings entering the market havebeen the main drivers of rental growth,and rents remain encouragingly between
JPY17,000 and JPY25,000. That said, the
new supply also caused a bump in vacancy
levels to 2.6%.
TenjinAfter seeing a 4.5% increase in rent fromthe end of 2019 to the start of 2020, rental
growth in Tenjin has slowed as rental

levels decreased 0.5% this half-year. Evenso, despite the massive inﬂux of supply in
2021, the Tenjin Business Centre, which will
introduce over 11,000 tsubo of NRA into themarket this year, is currently 80% reserved.
Furthermore, its face rent at JPY30,000 per
tsubo indicates a promising start.
Vacancy levels in Tenjin have decreased
over the past half-year by 0.3ppts to 1.4%.
This tight vacancy looks to continue
throughout the year, but secondary vacancy
remains a concern. Additionally, Daimyo
Garden Square, slated for completion in
2022, may ﬁ nd its location disadvantageous.
OutlookThus far, the Fukuoka oﬃce market isholding out well without much deterioration.
While it has begun to see vacancy levels inch
up, the market remains tight, and rents havebeen increasing. Furthermore, most of the
new supply completed this year has seen
strong demand and there have been limited
incidences of large-scale cancellations.
However, as new supply enters the market
throughout the year, secondary vacancy
could become an increasing concern.
Given the propensity for tenants to placeincreasing emphasis on location, the deliveryof 20,000 tsubo of NRA in 2022 acrossthree developments in secondary locations

11

may be scrutinised. Indeed, going forward,
we expect to see greater polarisation
between less convenient buildings and theircounterparts which are newer and closer tomajor stations.
On a brighter note, April 2022 will see
a new train line open between Tenjin and
Hakata, the two main areas of Fukuoka. This
will not only see a much-needed connection
between these two areas, but the plans forvarious new businesses should also bring
additional foot traﬃc downtown. This new
train line should aid Fukuoka’s central oﬃce
market and boost its growth potential going
forward.

Regional Japanese Oﬃce Markets

GRAPH 18: Vacancy Rate In Sendai City By Area, 2011 to
Q1/2021
Average
City Hall
30.0%

Station Front
Station East

1-bancho
Outer Area

25.0%

VACANCY

20.0%

15.0%

10.0%

5.0%

0.0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source Miki Shoji, Savills Research & Consultancy

GRAPH 19: Average Rent In Sendai City By Area, 2011 to
Q1/2021
Average
City Hall
12,000Station Front
Station East

1-bancho
Outer Area

JPY / TSUBO / MONTH

11,00010,000

9,000

8,000

7,000

6,000
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source Miki Shoji, Savills Research & Consultancy

TABLE 8: Miyagi Prefecture Key Macro IndicatorsTOKYO

MIYAGI

Real GDP (JPY trillion) (FY2018)

105.9

9.6

Real GDP (YoY%)

0.5%

0.6%

% of Japan (FY2018)

19%

2%

Population (million)

14.0

2.3

Job to applicant ratio

1.2

1.2

Source Cabinet Offi ce, Miyagi Prefectural Government,
Savills Research & Consultancy

savills.co.jp/research

SENDAI CITY
Supply and DemandThis year, Sendai will see the largest
inﬂux of NRA since 2012. This will befollowed by two years of manageablesupply before another large inﬂux in 2024
driven by the NTT Sendai Chuo Building,which will add over 6,000 tsubo of NRA.
This injection of supply will help curb
the trend of decreasing NRA in the cityand help freshen Sendai’s ageing stock.
Although, the new supply in 2021 is
likely to cause some secondary vacancy,
the subsequent two years of low supply
should give the market enough time torecover.
In 2020, most of the newly supplied
NRA was absorbed by the market, andthis trend has continued in 2021. For
instance, the JR Sendai East Building willcontribute nearly 70% of the total NRA
this year and appears currently almost
fully occupied. Additionally, the Milene
T Sendai Building, which makes up over
25% of the NRA for 2021, is almost fully
leased. Looking at the encouraging
performance of these buildings, newoﬃce supply looks set to continue its
strong absorption rate.
Vacancy
In response to the pandemic, occupiers
have adopted remote work practices,and subsequently cancelling oﬃce
relocations. These actions have caused
vacancy to increase to 6.6% - up 1.1ppts
from the end of last year. In fact, vacancy
has been creeping higher every monthsince October 2020. The COVID-19
spikes have discouraged the businessexpansion of foreign companies as well asother strong sectors, such as Japanese IT
and back-oﬃce support centres.
All submarkets saw an increasein vacancy in 2021, with Station Eastposting the highest increase of 2.1ppts
YoY to 7.8%. This increase stemmed
from the opening of major buildings thatbrought over 6,000 tsubo of GFA into thesubmarket, consequentially creating somesecondary vacancy. The Station Front
submarket may also see some vacancy
increases as the Milene T Sendai Building
comes onto the market later this year.
Outer Area is the only submarket
whose vacancy has continued to stayat pre-COVID levels. The submarkets
of 1-bancho and City Hall have begun
to see their vacancy rates stabilise. For
instance, Sougo Career Group set up its
new oﬃce in the Sendai Dai-ichi LifeGroup Building located in 1-bancho in
March.

12

Rent
Despite a loosening in vacancy levels,
average rents have generally increased in
Sendai. Whilst the new oﬃces completed
this year were one factor that contributed
to the growth, existing space has also seen
increased rents. Overall rents have inched
up nearly 0.3% YoY to JPY9,350 per tsubo.
Station East saw its rents increaseby 2.9% YoY. However, the submarkets
of Outer Area, 1-bancho and City Hall,
have seen a decrease in rents at 1.5%,
1.0%, and 0.6% YoY, respectively. Thisdecrease could be primarily attributed to
discounts and other incentives to attract
tenants.
The Station Front submarket
remains the most expensive at nearly
JPY10,900 per tsubo – over 7% higher
than Station East that places second.
With rental growth of 0.8% and 2.9%
YoY, respectively, these two submarkets
contributed to the bulk of the region’s
performance over the year. At the otherend, rents in the Outer Area remain thecheapest at around JPY6,950 per tsubo –a 57.5% discount to Station Front rents.
OutlookDespite vacancy loosening, rents havecontinued to increase, albeit marginally,
primarily driven by core areas around themain station. At the same time, demand
for new buildings is still strong as evident
by the notable absorption of new supply.
Moving forward, however, the secondary
vacancy from recent supply, coupled withthe lease cancellations or reductions ofSMEs, may continue to drive vacancy up
and increase polarisation in the market
where the demand for older and lessconvenient buildings is waning.
One of the most sweeping issues
for Sendai is its shrinking population.
Miyagi is expected to see an estimated
8% decline in the population between
2015 and 2025 – the largest drop whencompared to other major regions.
However, Sendai has several high-level
educational institutions, such as Tohoku
University which hosts Nobel laureates,
and will hopefully produce a steady ﬂow
of young professionals who will stay in
Sendai and help boost the local economy.

Regional Japanese Oﬃce Markets

GRAPH 20: Vacancy Rate In Sapporo City By Area, 2011 to Q1/2021
Average
Park South

Station Front
Outer SouthSAPPORO CITY

Station East-West
Station North

20.0%

VACANCY

15.0%

10.0%

5.0%

0.0%
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

GRAPH 21: Average Rent In Sapporo City By Area, 2011 to Q1/2021
Average
Park South

Station Front
Outer South

Station East-West
Station North

Vacancy
While the average all-grade vacancy rate
for Sapporo has been slowly rising since
March 2020, concurrent with the onset of
COVID-19, the vacancy rate has ﬂattened out
at 2.7% for the ﬁfth month in a row.
The ﬂattening vacancy rate has been
aided by improved demand in the primary
Station Front submarket as well as the more
aﬀordable submarkets of Park South andStation East-West. We may see this tested
later this year with GFA of nearly 7,000
tsubo slated to come onto the market.

13,00012,000JPY / TSUBO / MONTH

Supply and Demand
2021 will see a large increase in GFA of nearly
7,000 tsubo with a steady stream expected in
the years to follow. Demand for oﬃce spacein Sapporo has persisted despite the large
amount of NRA introduced to the market in
2021. Speciﬁcally, vacancies have managed toremain under 3%.
New buildings in recent years have seen
strong absorption by the market. Despitesome large cancellations, demand fromcall centres and technology companies
has eased any vacancy increments. One
example would be the new S-Building that
had seven of its ten ﬂoors taken up by TMJ,
a company that oﬀers call centre and otherback-oﬃce support services. They plan on
hiring another 700 people in the short term.
This pattern of demand looks set to continue
as new buildings such as The Peak Sapporo,
which is due to come online this year, has
had sound interest so far.

11,00010,000
9,000
8,000
7,000
6,000
2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

Source Miki Shoji, Savills Research & Consultancy

TABLE 9: Hokkaido Prefecture Key Macro IndicatorsTOKYO

HOKKAIDO

Real GDP (JPY trillion) (FY2018)

105.9

19.7

Real GDP (YoY%)

0.5%

0.6%

% of Japan (FY2018)

19%

4%

Population (million)

14.0

5.2

Job to applicant ratio

1.2

0.9

Source Cabinet Offi ce, Hokkaido Prefectural Government, Savills Research & Consultancy

savills.co.jp/research

13Regional Japanese Oﬃce Markets

Rent
Rents have increased YoY across all
submarkets by 2.4% with the average rent
sitting at JPY9,500 per tsubo in Q1/2021.
Indeed, Sapporo has continued to keep rents
above pre-ﬁnancial crisis, supported by the
opening of new oﬃces with higher rents
driving growth in the market. Notably, rents
for existing space improved as well.
Rents in the Station Front submarket
remain the highest in this region at around
JPY12,450 per tsubo with rental growthat 1.5% YoY. Rental growth has also been
noticeable in other submarkets. Speciﬁcally,
all-grade rents in Station North saw anincrease of 5.4% YoY, primarily driven by
the contracting vacancies and increased
competition in the large buildings segment.
Park South also saw an increase of 1.9% YoY,
thanks in part to the opening of S-Building
Sapporo.

OutlookDespite COVID-19, vacancy remains tight,
and rents have continued to rise. Demand has
held up well for large buildings with newer
infrastructure. Given the steady supply due tocome online in the coming years, vacancy is
expected to remain tight while rents increase.
However, due to the multiple states of
emergencies, oﬃce demand has struggled
to pick up pace as tenants have sat on theside lines. However, given that infection
rates have subsided and that plans for an
accelerated vaccine distribution are afoot,we expect the situation to improve moving
forward.
Multiple redevelopment projects areunderway by Sapporo Station in the central
part of the city which will come online
over the next few years. These projects will
hopefully be boosted by the new bullet train
line which will connect Sapporo to othermajor cities by 2030.

For more information about this report, please contact us

Savills Japan

Savills Research

Christian Mancini
CEO, Asia Paciﬁc(Ex. Greater China)+81 3 6777 5150
cmancini@savills.co.jp

Tetsuya Kaneko
Managing Director, Head of
Research & Consultancy, Japan+81 3 6777 5192
tkaneko@savills.co.jp

Simon Smith
Regional Head of Research& Consultancy, Asia Paciﬁc+852 2842 4573
ssmith@savills.com.hk

Savills plc: Savills plc is a global real estate services provider listed on the London Stock Exchange. We have an international network of more than 600 offi ces and associates throughout the Americas, the UK,continental Europe, Asia Paciﬁc, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. This report is for general informative
purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. While every effort has
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is prohibited without written permission from Savills Research.

14